How to License a Product

How to License a Product

If a patent is owned, patent or product licensing can provide a means to help protect an invention against infringement through commercial robustness and also allow the licensor to derive financial benefits from the licensing of patent rights. Typically, this is done to accelerate bringing an invention to market and utilise a well-positioned manufacturing or retail partner to more rapidly exploit the market opportunity.

A well drafted license agreement can act as a tremendous business opportunity for the inventor or licensee and can generate income for the licensor. A licensing agreement usually has certain payments and performance obligation attached to it. For example, the licensee might have to report the earnings made from distributing or selling the invention to the market on a periodic basis to allow the licensor to calculate their royalty income.

The decision to license a product or manufacture it

Once marketability has been determined and a clear customer need identified, most inventors then protect their invention under the applicable patent laws. Depending on the financial investment required and financial and business ability of inventor, they may then decide to pursue a licensing agreement or manufacture it on their own. Each path requires a careful consideration of the relative risks and merits, based on an assessment of the above.

For most inventors, licensing their invention and collecting royalties, or even selling it outright seems an attractive option as the perception is that it is less risky and requires less involvement of the inventor. Whilst this may be partially true, the actual success rate of those that secure a successful licensing deal should be explored and considered within the context of their situation as the complexity, scope and investment required all vary depending on the particular situation of the inventor and their idea.

For those that have a strong entrepreneurial side, the option of manufacturing it on their own is appealing. Additionally, the fact that a typical financial gain of 2% to 10% royalty payment for an average licensing deal doesn’t seem as appealing for them as exploiting a strong entrepreneurial instinct and growing their invention as a business.

Why would someone want to license my product?

Most businesses are hungry for innovative ideas regarding creating new products. Whilst they may have a strong commercial understanding, the cost of producing genuinely innovative and profitable products can be substantial, and is a cost that many seek to avoid and by contrast, look to external sources of innovation.

If you have done your research, and feel confident that you have an idea that will be accepted in the market, that the costs of production are understood and are not prohibitive to creating a competitive business model and that you have some form of demonstrable prototype, then licensing your product may well be viable solution.

Whatever you choose to do, please ensure that you check the credentials of any company claiming to be able to secure you a licensing deal. It is not easy to do, and you should ensure that you seek the professional advice of more than one organisation as to the steps involved and how best to prepare yourself for any such campaign.

Brand Refinery can assist you in realising the potential of your invention through carrying out marketing campaigns to solicit interest in the Intellectual Property you own. Before we can do this however, we must feel that you have an invention or idea that addresses a genuine need, and/or displays a credible inventive step that marries with marketability before we would engage with any client.

We can then engage and co-ordinate the negotiation of your licensing rights with the licensee.

Here are the typical steps involved:

Identify the right manufacturer / partner.

Prepare material for marketing your invention which may include business plan, market research, production costings.

Consider whether a prototype can be produced to show feasibility to potential partners.

Targeted, consultative marketing campaign using a variety of tactics to engage with potential partners.

If substantive interest is gained, involvement of specialist licensing representative to secure your best interests when negotiating license deal.

From our experience, here a few things you should be aware of:

First year loyalty for exclusive license agreement is typically paid in advance by the licensee.

To ensure your invention grows in the market, you can impose some minimum yearly royalty amount and attach performance requirements.

Licensee also covers the inventor with insurance in case the invention causes any harm to the end user.

To check the accuracy of reported sales figures, third party audits can be done.